Masters Of War

Come you masters of war You that build all the guns You that build the death planes You that build all the bombs You that hide behind walls You that hide behind desks I just want you to know I can see through your masks. You that never done nothin' But build to destroy You play with my world Like it's your little toy You put a gun in my hand And you hide from my eyes And you turn and run farther When the fast bullets fly. Like Judas of old You lie and deceive A world war can be won You want me to believe But I see through your eyes And I see through your brain Like I see through the water That runs down my drain. You fasten all the triggers For the others to fire Then you set back and watch When the death count gets higher You hide in your mansion' As young people's blood Flows out of their bodies And is buried in the mud. You've thrown the worst fear That can ever be hurled Fear to bring children Into the world For threatening my baby Unborn and unnamed You ain't worth the blood That runs in your veins. How much do I know To talk out of turn You might say that I'm young You might say I'm unlearned But there's one thing I know Though I'm younger than you That even Jesus would never Forgive what you do. Let me ask you one question Is your money that good Will it buy you forgiveness Do you think that it could I think you will find When your death takes its toll All the money you made Will never buy back your soul. And I hope that you die And your death'll come soon I will follow your casket In the pale afternoon And I'll watch while you're lowered Down to your deathbed And I'll stand over your grave 'Til I'm sure that you're dead.------- Bob Dylan 1963

Sunday, August 30, 2015

the movement of oil prices was again the overriding story affecting the fracking patch this past week, as they fell by more than 6% from last week on Monday, hit the same 6 and a half year lows on Wednesday, only to rise over 17% over Thursday and Friday to close higher for the first time in the last 9 weeks...after falling nearly 5% to $40.45 a barrel last week, oil prices crashed with the rest of the global markets on Monday, with the near term contract briefly trading with a 37 handle before steadying and closing at $38.24...oil prices then recovered Tuesday when the western stock markets rallied, closing at $39.31, only to slip back to close at $38.60 on Wednesday...with word of a Chinese stimulus and rising global markets continuing on Thursday, oil prices jumped 10% as "the shorts", or those who had sold oil that they didn't own earlier in the week, were forced to cover their positions (ie, buy oil to cover what they sold) at increasingly higher prices...the short covering rally continued on Friday, adding another 6% to oil prices, as the media attributed the price increase to Saudi military action in Yemen and a tropical storm approaching Florida as a threat to the Gulf of Mexico...

so you can all see what that price swing looked like in relationship to the recent collapse in oil prices, we'll include a chart below that tracks the price of the current oil contract on the NY Mercantile Exchange over the past 3 months…at the beginning of that period, you can see that oil had been trading around $60 a barrel, a price it had reached and stabilized at in early April, after dropping into the 40s in both January and March, which precipitated the shutdown of half the oil rigs that had been working in the US before the OPEC meeting that started the oil price crash...you can see that the $60 price level broke down in early July, when a confluence of issues in Europe and Asia made a global slowdown appear likely, and that oil prices have fallen steadily since...while we're looking at that, also note the little red and green rods at the bottom of the chart, which show the volume of trading on up (green) or down (red) days for each day for this contract (for delivery of oil in October)...notice that the volume of oil contracts traded spiked in early August, indicating a large number of contracts changing hands near the $45 a barrel price...that was the same price that oil had bottomed at in January and March, and apparently a lot of traders were betting that the same would happen here in August, but they were overwhelmed by those selling this paper oil...

now, although the media will attribute every move in the price of oil to some fundamental change, such as a buildup of oil inventories or a tropical storm threatening oil platforms in the Gulf, it seems pretty clear that the recent action on oil prices has largely been driven by bets placed by traders, which include those working the trading desks in the banks and commodity houses, rather than any fundamental change in the physical commodity or the demand for it....according to data from the Commodity Futures Trading Commission and NYMEX, hedge funds had accumulated one of the largest short positions in U.S. crude on record over the last two months, selling the equivalent of almost 160 million barrels of oil that they didn't own, in the hopes that they could buy oil back cheaper at some date in the future and deliver on their commitment to sell with a profit...once the price of oil started rising with the other global markets, they were on the wrong side of that trade and forced to buy oil to cover their positions, driving the price up farther than it would have otherwise risen...this short covering may not be over yet (there's no clear data on current positions) so we may see another few days or even weeks of volatile oil prices before they settle into a price range that is more representative of supply and demand factors rather than of gambling strategies...

nonetheless, even though the current oil prices are driven by market gamblers, it is those prices that the drillers must sell their oil at and the refineries must buy theirs at, except insofar as either drillers or users had already entered into a contract to buy or sell oil at an earlier price...at these prices, there is no doubt that the frackers are losing money on each barrel of oil that they produce, once all their overhead and expenses are accounted for...but stopping drilling and/or stopping production is not an option for them; they need to keep pumping out oil and selling it at whatever price they can get just to pay the interest on their debts; ie, whatever bank loans and or bond issues they had floated to finance their operations...at least 10 of them have gone bankrupt already, no doubt most of the rest of them are already zombies, virtually dead but still drilling and pumping out oil nonetheless...when we looked at 2nd quarter reportsa few weeks back, most were already posting losses with oil at $60 a barrel; no doubt they're all operating in the red with oil prices at $45...

furthermore, their finances can only get worse from here...data compiled by Bloomberg this week indicates that the oil industry has $550 billion in bonds and loans that are due for repayment over the next five years, with bonds from 168 of those companies in North America, Europe and Asia now yielding more than 10%...of that, $72 billion in oil-related debt is maturing this year, $85 billion is due in 2016 and $129 billion matures in 2017...many of those bonds were originally sold to yield 3% or 4% when the oil patch was booming; so when they come due and must be reissued, the interest that they're paying on their bond principal will triple...in addition, many have borrowed money from banks based on the value of their recoverable reserves when last reviewed in October, when oil prices were still above $80 a barrel...if oil prices are still this low when the banks do their nextreview of oil company economically recoverable reserves two months from now, their bank lines of credit will be withdrawn...

it appears there was little in the oil production or throughput stats that influenced this week's price swings, because although a few key metrics reversed last week's changes, they generally moved back into the range we'd seen them in all summer, when oil prices first began to fall...US field production of crude oil fell slightly, from 9,348,000 barrels per day in the week ending August 14th to 9,337,000 barrels per day in the week ending August 21st...although that's about 3% off the early June peak, it's still 8.9% higher than our output during the same week last year, when our overproduction first started putting downward pressure on oil prices...meanwhile, our imports of crude oil fell by 839,000 barrels per day from their 18 week high of last week to 7,199,000 barrels per day in the week ending August 21, which brought the 4 week average of imports down to 7.5 million barrels per day, 1.7% below the same four-week period last year...with the Whiting Indiana refinery still down, US refinery inputs of crude oil fell for the 3rd week in a row, dropping from 16,775,000 barrels per day in the week of August 14th to 16,658,000 barrels per day in the current report; still, that's 1.5% higher than the 16,418,000 barrel per day refinery inputs of the same week in August last year, so total output isn't suffering ...the weekly Petroleum Status Report (62 pp pdf) reports our refineries were operating at 94.5% of their operable capacity last week, which was down from the post recession record 96.1% of their capacity they were running at in the last week of July...

with production and imports down much more than refineries operations, oil companies made up the difference by drawing oil out of storage; our commercial crude oil inventories in storage, which doesn't include the federal Strategic Petroleum Reserve, fell from 456,213,000 barrels on August 14th to 450,761,000 barrels as of August 21st...that's still more than 24.3% higher than the 362,545,000 barrels of crude we had stored in the same week last year, and as you all know by now, the highest for this time of years in the 80 years that such records have been kept, a span that had never seen more than 400 million barrels of oil in storage before this year....

the price of oil has yet to put a major dent in the number of rigs the frackers have been operating....although Baker Hughes reported that the total rig count fell by 8 rigs to 877 in the week ending August 28th, the largest drop in their count since June 12th, it was gas rigs that were idled; total oil rigs rose for the 6th week in a row, as rigs drilling for oil increased from 674 last week to 675 this week, while rigs drilling for gas fell by 9 to 202....active oil rigs are now up by 37 from the 5 year low of 628 which they fell to on June 26th, but down 900 from the year ago count of 1575 and down 934 from the high of 1609 hit on October 10th of last year, while active gas rigs are down by 136 from a year ago and down by 154 from the recent peak of 356 gas rigs that were operating during the week of November 11th....

two more offshore platforms were idled this week, after 6 were shut down over the last two weeks, leaving 30 active, down from 66 offshore rigs that were operating a year ago....a net of 5 horizontal rigs were idled this week, bringing the fracking rig total down to 672, down from 1330 a year ago....including those offshore, 5 vertical well drillers were stacked, leaving 125 vertical rigs operating, down from 374 in the same week last year...meanwhile, 2 additional directional well drillers were put into operation, bringing the directional rig count up to 80, which was still down by 130 from the 210 directional rigs in use a year ago...

the major shale basins saw little change in total activity this week, as only the Eagle Ford in southeast Texas had two rigs idled, which dropped the count in that basin to 97, down from 203 a year earlier...on the other side of the state, drillers added 2 rigs in the Permian basin, which now has 255, down from 557 a year ago...but a total of 3 rigs were added in Texas oil & gas districts 5,and 10, which aren't demarcated by a major shale basin, so Texas ended the week up 3 rigs to 386, but still down from 900 rigs a year ago...outside of Texas, only 3 of the major shale basins tracked by Baker Hughes saw changes this week, with the Marcellus and Niobrara each dropping a rig, and the Haynesville adding one...

other than Texas, no state saw their rig count increase...the Louisiana rig count was down 6 to 71, which was also down from 117 a year ago...that included the 2 offshore, 2 on southern inland lakes, and 3 more on land in the southern part of the state, while one land rig was added in the north...other states shedding rigs included New Mexico, down 3 to 50, and down from 94 a year ago, Colorado, down 1 to 36 and down from 75 a year ago, Oklahoma, down 1 to 105, and down from 212 rigs a year ago, and Pennsylvania, down 1 to 35, and down from 55 a year ago...with 19 rigs, the rig count in Ohio was unchanged, as was the count in other states that weren't mentioned here...

the total count of rigs drilling for gas and oil was little changed once again this past week, as Baker Hughes reported that a net of one rig was added in the week ending August 21st, as rigs drilling for oil increased by 2 to 674, working gas rigs were unchanged at 211, the last miscellaneous rig was shut down...but there was once again a major change in offshore rigs, as 3 were pulled from the Gulf of Mexico this week after 4 were added in the first week of August and 3 were pulled last week...that brings the offshore rig count down to 32, half of the 64 that were drilling offshore during the 3rd week of August a year ago...vertical rigs increased by 3 at the expense of 3 directional rigs, while one horizontal driller was added...that leaves the vertical rig count at 130, down from 366 a year ago, the horizontal rig count at 677, down from last year's 1321, and the directional count at 78, down from the 209 directional rigs that were in use last August 21st...

while the two largest Texas shale basins, the Permian and the Eagle Ford, both saw rig increases over recent weeks, 2 rigs were pulled from both of those basins this week, leaving 253 in the Permian, down from 555 a year ago, and 99 in the Eagle Ford, down from 200 last year...the Barnett shale of north central Texas saw a reduction of 3 rigs, leaving 7, down from 26 that were drilling in that basin a year ago...that left Texas with 383 rigs, down a net 6 for the week, and down 505 from the 888 rigs that were working Texas a year ago...elsewhere, 2 rigs were pulled from the Utica shale, leaving 20, down from 44 last year, and one each were pulled from the Marcellus and the Niobrara chalk, leaving those basins with 52 and 31 rigs respectively, down from 76 and 62 a year ago...meanwhile, 3 rigs were added in the Williston basin, bringing that count up to 73, down from 192 last year, and two rigs were added in the Cana Woodford, the only basin to see a year over year increase, now at 39, up from 33 a year earlier...other than Texas, states with reduced rig counts included Pennsylvania, down 2 to 36, Colorado, down 1 to 37, Louisiana down 1 to 77, and West Virginia, down 1 to 17...meanwhile North Dakota and Oklahoma each added 3 rigs. bringing those totals to 72 and 106 respectively, while Wyoming added 1 to total 25 and Alaska, California, and Kansas each added a single rig, bringing all three states up to 13 active rigs each...

US crude oil output fell this week, but our oil imports were the highest since early April, and with a major refinery idled, that unexpectedly led to the largest increase in our inventories of oil in storage in 4 months, precipitating yet a further crash in the price of oil...US field production of crude oil fell for the third week in a row in the week ending August 14th, from 9,395,000 barrels per day last week to 9,348,000 barrels per day in this week's report...while that was down 2.7% from the modern record of 9,610,000 barrels per day set in the week ending June 5th, it was still 9.6% higher than our output of 8,556,000 barrels per day in the same week last year...our imports of crude oil, meanwhile, rose for the 3rd week in a row, jumping from 7,573,000 barrels per day in the week ending August 7th to 8,038,000 barrels per day in the current report...while that's 2.4% more than the same week last year, our 7.6 million barrels per day average crude imports of the last 4 weeks is still 0.9% lower than the same 4 week period of last year...

so, if we've got plenty of oil stored, and with at least two refineries operating below capacity, why do we continue to import near fracking-era record amounts of crude oil? one reason is the contango trade that we've talked about in the past, wherein contracts for oil to be delivered in the future are at a price somewhat higher than the cost of buying oil now, such that it pays for speculators to buy oil and pay for its storage, and enter into a contract to sell it back at a higher price in the future...at one point last week, the contract for oil to be delivered in December was more than a dollar a barrel higher than the current price, meaning that a speculator could buy oil at today's price, pay the fees to have it stored at Cushing or elsewhere, and sell it back in December with a clear profit...but as we should all know, for every contract there has to be a counterparty, and for everyone who's buying oil now with a contract to sell it in December, there was a seller of that oil at today's price and a someone else buying a contract to take delivery of that oil for a dollar more a barrel in December...so for every one who's trading oil like this, there is someone on the other side of those trades, be it a bank, commodities house, or an oil company, taking the other side of those contracts, and effectively betting against the contango trader...they both can't be right, and those who bet on higher prices in March and a month ago have since lost their shirts...

another reason for continued high imports of oil is that we're exporting more refined products than ever before...in the 2nd week of August, our total exports of refined petroleum products averaged 3,884,000 barrels per day, up 10.6% from the 3,512,000 barrels per day we were exporting in the same week last year...but that's also more than double the 1,851,000 barrels per day of refined products we were exporting in August 2009, and more than quadruple the 964,000 barrels per day of refined products we were exporting in August of 2004...we're also exporting more crude oil too, mostly mostly to Canada, where the lighter grades of distillates are blended with tar from the oil sands to produce diluted bitumen, or dilbit, which can then be delivered by pipeline...on a monthly basis, our total exports of crude and petroleum products hit a record 4,943,000 barrels per day in April, more than double the 2,432,000 total exports of April five years earlier...

but the week just ended was somewhat an anomaly, in that with the aforementioned refinery constraints, our total exports did not rise, and our total imports of refined products rose to 2,614,000 barrels per day, up from 1,927,000 barrels per day of refined product we imported just two weeks ago ...that was only the 2nd time in the past two years wherein our refined product imports topped 2.6 million barrels per day, and as a result our total imports of crude oil and petroleum products rose to 10,652,000 barrels per day, for our highest weekly total imports this year...subtracting the 4,460,000 barrels per day of crude and products that we exported this week means our net petroleum and product deficit was at 6,192,000 barrels per day for the week, which was also the greatest excess of crude and products imports over exports that we've seen this year...

but even with all the oil and products that we're importing, there's been an ongoing push by the frackers and their supporters to end the federal ban on crude oil exports, which was instituted in 1975, at a time when our production started to slip and domestic shortages developed...the reason the oil industry wants to export crude, even though we're importing so much, is simple; international oil prices have been running between $5 and $10 a barrel more than US oil prices...so if they're able to sell their crude overseas (Canada and Mexico are exempt from the ban), US prices for oil will quickly jump to the international price, and we'll be paying 10% to 20% more for our oil products than we otherwise would if our market remained protected...a bill to lift the ban has passed the U.S. House, and a similar bill cleared the U.S. Senate Energy Committee in July, and it will probably be taken up when the Congress returns from recess after Labor Day...a new report, published Friday by the Center for American Progress, predicted that US oil production will increase if the export ban ends, and that an average of 26,385 new oil wells would be drilled in the U.S. each year between 2016 and 2030 if the ban is lifted, 7,600 more wells per year than would be otherwise...as a result, an additional 137 square miles of land would be developed for oil each year...over 15 years, that would be 2055 more square miles of oil drilling sites than we'd otherwise see, or a total drilled out and fracked area more than 60% larger than the area of the state of Rhode Island...so if we want to save ourselves from that dystopian future, we'd better start pushing back against the frackers on that export issue now..

since we missed the rig count last week, we'll catch up on that next...over the past two weeks, Baker Hughes reported that a net of 10 additional drilling rigs were put into service in the US, with the entire increase in that count coming in the first week of August...oil rigs increased by 6 in that week and by 2 last week, to bring the current oil rig count up to 672, up from a low of 638 on July 17th, but down from the 1589 oil rigs in use a year ago, and down from the peak of 1609 oil rigs hit on October 10th of last year...gas rigs totaled 214 at the end of the week, after an increase of 4 in the first week of August and a decrease of two last week....despite the pickup in oil rigs over the last 4 weeks, the gas rig count has continued to slide, and is now down from 321 a year ago, and from 356 at the November 11 interim peak...there has also been an unusual fluctuation in the offshore rig count, as 4 were added in the first week of August only to have 3 withdrawn from operations last week....that leaves 35 rigs working offshore as of Friday, down from 62 a year ago, with 34 of those in the Gulf of Mexico and one off the shore of Alaska...

the drillers are again adding more horizontal rigs than other types, as 8 were added in the first week of August while 4 were added this week; that brings the horizontal rig count back up to 676, up from 650 four weeks ago, but down from 1329 a year ago...drillers also activated a net of 3 vertical rigs in the week ending August 7, but shut down 2 last week, leaving the vertical rig count at 129, down from 368 a year ago....meanwhile, the directional rig count was down 1 on August 7th and down another 2 last week, leaving it at 81, down from 216 a year earlier...

of the major horizontally fracked basins, the Permian basin of west Texas and New Mexico remains the most active, with 255 rigs, or nearly 30% of the 844 currently active rigs, working there this week, after 6 were added in the week of the 7th and another was added this week...however, that's still down from the 558 rigs that were drilling into that basin a year ago...activity in the Eagle Ford of southeast Texas has also increased, with 3 added this week after the net was unchanged the prior week...that brought the Eagle Ford count up to 101, which was still down from 199 a year earlier...the Williston basin, North Dakota home of the Bakken shale, ended the week with 70 rigs, down from 194 a year ago, after an addition of 1 rig last week and a removal of 2 rigs this week...meanwhile, 53 rigs remained in the natural gas yielding Marcellus of Pennsylvania and West Virginia, down from 77 a year ago, as 2 more rigs were withdrawn this week after a reduction of 1 last week...the rig count in Oklahoma's Cana Woodford remained unchanged at 37 after 2 weeks, while it's still the only basin to see an increase from the 34 rigs operating there a year ago...the Niobrara Chalk of the Rockies' front range ended the week with 32 rigs, down from 62 a year ago, after one rig was added this week, while the Haynesville shale of Louisiana netted no change from 30 rigs, down from 45 a year ago, after one was added last week and one was withdrawn this week...lastly, Ohio's Utica shale ended the week with 22 rigs, down from 44 a year ago, as one rig was pulled from the area in each of the last two weeks...

on a state basis, then, Texas ended this week with 390 rigs, after adding 8 rigs last week and 6 this week, which was still down from 908 a year ago...Oklahoma ended with 103, down from 209 a year ago, as they saw 4 rigs idled this week...Louisiana also saw 4 rigs pulled this week, but after 4 were added last week, leaving the state with 78 rigs, 33 of which were offshore, and which was down from their total of 116 in the 2nd week of August last year...North Dakota added a rig last week but pulled 2 this week, leaving them with 71, down from 182 a year ago; New Mexico, down 2 this week and unchanged last week, finished with 52, down from 94 a year ago, while Pennsylvania was down 3 last week and 1 this week to end at 38, down from 51 a year ago...Colorado also ended the week with 38 active rigs, down from 75 a year earlier, as 2 there were idled last week, only to see 2 restarted this week...Ohio finished with 19, down from 42 a year ago, as we saw a rig pulled out in each of the last two weeks...other notable changes saw West Virginia up two then down 1 to end at 18, down from 29 a year ago, and saw Kansas add 5 over the last two weeks to bring their total back to 12, still down from 26 a year ago...

Baker Hughes has also updated the international rig count with the averages for July, which showed the global rig count at 2,167, up from 2,136 in June but down from 3608 a year earlier, with most of those year over year reductions in North America...the average rig count in the Middle East fell from 401 in June to 391 in July, which was down from 432 a year earlier...notable changes in the region included Iraq, down 9 rigs to 44, Kuwait, down 6 rigs also to 44, Oman down 4 rigs to 67, and Pakistan, up 6 rigs to 23...the Saudis averaged 123 rigs in July, up from 121 in June and up from 105 in July a year ago....Latin America saw a net decline of 1 rig last month to 313 rigs, down from 407 a year ago, as the area added 7 land based rigs and shut down 8 offshore...within the region, Mexico saw a reduction of 6 rigs to 45 while Venezuela added 4 to reach 70...the Asia / Pacific region saw 212 rigs active in July, 3 fewer than in June and down from 253 last year, as India added 3 to bring their total to 116 and several countries cut one rig each...in Europe, the rig count fell 5 to 108, down from 153 last July, as Turkey and Italy each cut two rigs, while African nations averaged 94 rigs for the month, down 9 from from June and down 43 from a year ago, as Libya, Nigeria and Angola each reduced their active rig count by 2...

however, the Canadians added 54 rigs in July, for an average of 179, which was still down from 350 in July a year ago...also included in the release of the weekly count with US rigs, they added 15 in the week ending July 31st, reduced their count by 7 in the first week of August, and added 3 in the week just ended, to finish with 211 rigs as of August 14th...over the last two weeks, Canadians have shut down 12 oil rigs, leaving 100, while they've added 8 gas directed rigs, to bring the count of gas rigs to 111...the Canadian count is now down 190 rigs from last year's 401, with oil rigs down 124 and gas rigs down 66...

in the US, our field production of crude oil fell during the most recent reporting week, from 9,465,000 barrels per day in the week ending July 31st to 9,395,000 barrels per day in the week ending August 7th...while that's down a bit more than 2% from the record oil production of the 1st week in June, it's still 11.1% higher than our output during the same week last year...meanwhile, our imports of crude oil jumped again, rising from 7,180,000 barrels per day in the week ending July 31st to 7,573,000 barrels per day in the current report...while that's up 10,000 barrels per day from the first week in August a year ago, we check the weekly Petroleum Status Report (62 pp pdf) to find the four week average of imports, which at 7.6 million barrels per day is 1.1% lower than the same 4 week period a year ago....with refineries still running at 96.1% of capacity, our crude oil inventories in storage fell once again, from 455,275,000 barrels last week to 453,593,000 barrels in the this week's report....that was still 24.1% more oil than the 365,618,000 barrels we had stored in the first week of August last year, and in fact much higher than had ever been stored in mid July in the 80 years of EIA record keeping, which had never seen a 400 million barrel inventory level before this year...

Wednesday, August 12, 2015

When the US embarks on perennial quantitative easing, that's OK. When the EU does QE as well, that's OK. But when the Bank of China decides it's in the best interest of the nation to let the yuan go down a bit instead of infinitely up, that's Armageddon.

LIES MATTER! !Just as Afghanistan and Iraq were wars of choice, so was Nam a war of choice. They were based on lies and ended with more lies. We are perfecting these wars of choice.Why?Because we can.The American peeps have grown immune to war. Hell we even condone it.That is until its your son, daughter, brother, sister, mother, father, or some other loved one comes back in a body bag.Even then some will say "He/she died for our country. How ignorant and absurd.If you all want to have another war send the old men to die.Hell I'll go. I am 65 and goona die soon any way.Let the young people live so they can perhaps end wars. Every politician and war monger should be sent to the front lines.Along with their entire families.Let them smell the stench of death before they make us pay with our blood sweat and tears.Tao Dao Man

as a lot has happened with the price of oil since the last time we discussed it, we'll include a graph of US oil prices over the past year, so you can all see what has been happening...the graph below shows the past year's track of the near term contract price per barrel of the US benchmark oil, West Texas Intermediate (WTI), sitting at or to be delivered to the oil depot in Cushing Oklahoma...we can see that oil had been falling most of last summer, even as drillers were still adding rigs and expanding production....and we know that oil drilling continued into the fall, with the rig count peaking in October, even as oil prices slipped below $80 while the global surplus was developing...we can then see the first collapse of prices beginning in the last week of November, when the price of oil fell from $78 to $65 in the days immediately following the OPEC decision to continue their level of production...oil prices then fell below $45 a barrel in intra-day trading in mid January, a level at which 97% of US shale wells became unprofitable, before climbing back up above $58 again in February...they touched the January lows again in March before moving back up to near $60, in a range where they stayed for most of the second quarter...but even at those prices, most independent drillers reported losses during that period, and now they've fallen another 28% from the $61.01 price of June 23rd...

as we noted earlier, US field production of crude oil rose in this week's report, from 9,413,000 barrels per day in the week ending July 24 to 9,465,000 barrels per day in the week ending July 31st; while that's still almost 1 1/2% off the early June peak, it's still 12.0% higher than our output during the same week last year...meanwhile, our imports of crude oil also fell for the 2nd week in a row, from 7,545,000 barrels per day the prior week to 7,180,000 barrels per day in the week ending July 31st, still, over the last four weeks, crude oil imports averaged 7.5 million barrels per day, just 0.4% less than the same period last year...in addition, last week saw another drop in crude oil crude oil inventories in storage, from 459,682,000 barrels on January 24th to 455,275,000 barrels as of July 31st...that's still more than 24.5% higher than the amount of crude we had stored in the same week last year, and as you should all know by now, the highest for this time of years in the 80 years that such records have been kept....so, with imports and inventories down and production up just a bit, where did that oil go? through our refineries; in the week ending July 31st, U.S. crude oil refinery inputs averaged a record 17,075,000 barrels a day, as the weekly Petroleum Status Report (62 pp pdf) reports our refineries were operating at a post recession record 96.1% of their capacity last week, as gasoline production averaged 10.0 million barrels per day...and we have a chart for that, too, since it is at a new record high…

the above chart was featured in the Today in Energy Report of August 7th from the US EIA, wherein i've accidentally included a clip of their opening lines, telling us that US refineries have been processing over 17 million barrels per day for the past 4 weeks, which has never happened before in the time they've kept those records...what the chart shows in the grey band is the range of crude processed by US refineries for any given date over the 5 year period from 2010 to 2014, with the dashed line indicating the average of that; then the dark blue line shows the daily refinery inputs for 2014, which obviously forms the top band of the 5 year range, and the red line indicates refinery inputs so far for 2015...so what the chart in effect shows is that every day in 2014 set a new 5 year record for refinery throughput, and so far every day in 2015 topped 2014...while there were a few weeks in the 2004 to 2006 period where refinery inputs topped 16 million barrels per day, the last month is the first time we've seen the 17 million barrel per day clip breached..

with the refineries running flat out as they have been, refined products supplied have also been above their average range...in the week ending July 31st, total products supplied averaged 20,338,000 barrels per day, up from 19,633,000 barrels per day in the same week a year ago...gasoline output has averaged 9.5 million barrels per day over the last 4 weeks, up by 5.4% from the same period last year...total motor gasoline inventories increased by 0.8 million barrels last week, although like stocks of crude oil, they've been trending lower in the summer driving season, and are only up 1.3% from a year ago...inventories of distillate fuel oil are up 15.9% from the same week last year, inventories of kerosene type jet fuel are 26.8% higher, and inventories of propane/propylene, a petrochemical feedstock, are 32.0% higher than they were on August 1st last year..and we're also consuming more; our consumption of gasoline was up 2.9% in the first 5 months of this year as cumulative travel for 2015 was up by 3.4% and vehicle miles driven in the US over the prior year topped 3 trillion at 3,080,600 million, up from 2,996,249 million in the year ending May 2014...we're also exporting more too; in the week ending July 31st, our total exports of crude oil and petroleum products was at a record 4,460,000 barrels per day, 17.2% higher than in the same week a year ago...

Friday, August 7, 2015

Two research documents published in recent months by the US Army reveal the military establishment’s latest thinking in startlingly frank terms. The research not only lends credence to environmental warnings about how climate change will fuel political instability, but also vindicates concerns about how looming resource shortages could destabilise the global economy.

Sunday, August 2, 2015

the unusual changes in the oil patch metrics we saw last week reversed themselves this week, so all of our speculation on possible energy markets changes they might have indicated have gone by the boards...US field production of crude oil, which had been holding near its early June record until last week, fell 1.5% in this week's report, from 9,558,000 barrels per day in the week ending July 17th to 9,413,000 barrels per day in the week ending July 24th; though that's still up 11.5% from the 8,443,000 barrels per day production in the same week last year, it's now more than 2% off the record of 9,610,000 barrels per day produced in first week of June this year....our imports of crude oil also fell, from 7,941,000 barrels per day last week to 7,545,000 barrels per day in the current reporting week, which was down 2.6% from the same week last year, but still left the 4 week average over 7.5 million barrels per day, 1.0% above the same four-week period last year...with lower production and imports, our inventories of crude oil in storage fell by 0.9%, from 463,885,000 barrels in last week's report to 459,682,000 barrels as of July 24th...that's still 25.1% more than the 367,374,000 barrels that were reported stored on July 25th of last year, and still nearly 20% more oil than had ever been stored at the end of July in the 80 years of EIA record keeping, which had never seen 400 million barrels of oil in storage before this year...

likewise, after the unusual increase in drilling rigs last week, after oil prices had been falling for month, the total count of rigs in operation this past week fell once again, although oil drilling rigs did increase again for the 5th week in a row...Baker Hughes reported that in the week ending July 31st, the number of active drilling rigs in the US fell by to 874, with oil rigs up 5 to 664, gas rigs down 7 to 209, and miscellaneous rigs unchanged at 1; that was down by 1,015 rigs from the 1,889 that were running at the end of July last year, with oil rigs down from 1573, gas rigs down from 313, and miscellaneous rigs down from 3...while 6 land based drilling rigs were taken out of operation this week, leaving 841, one rig was set up on a lake in Louisiana, bring the inland lake total to 5, and 3 rigs were added offshore in the Gulf, which now has 34...the shift to conventional drilling has also reversed, as there were 126 vertical rigs in operation, 5 less than last week, while horizontal drilling rigs increased by 2 to 664 and directional rigs increased by 1 to 84...

the largest increase in rigs this week was in the Cana Woodford, where 4 were added, bringing the total to 37; the count there is up from 32 a year ago, and it's the only shale basin in the US to see an increase in rigs over the past year..in addition, 3 rigs were added in the Permian basin, and the Utica and the Williston shales each saw an increase of 1 rig...meanwhile, 3 rigs were pulled out of the Marcellus, 2 were pulled from the Eagle Ford, and one was pulled from the Granite Wash....

the state rig totals don't match up well with the basin counts, however...we know Oklahoma drillers added 4 rigs in the Cana Woodford, but the net change for the state is zero...that would suggest that 3 conventional rigs were shut down in the state, and that a Granite Wash rig also was removed from OK...elsewhere, the Kansas rig count was reduced by 4 to 7, the Utah count was reduced by 3 to 4, the Pennsylvania count was reduced by 2 to 42, the Alaskan count was reduced by 2 to 9, the Colorado count was reduced by 1 to 38, and the rig count in West Virginia was reduced by 1 to 19....states adding rigs included New Mexico, where rigs increased by 3 to 54, Louisiana, where rigs increased by 2 to 78 with the removal of two land rigs and the addition of 4 on the water, North Dakota, where the rigcount increased by 1 to 70, Ohio, where the rig count increased by 1 to 21, Texas, where the rig count increased by 1 to to 375, and Wyoming, where the rig count increased by 1 to 22...in addition, single rigs were added in Alabama and Mississippi, which now have 2 and 3 rigs in operation respectively...

this past week has brought us the first raft of quarterly reports from the major oil & gas companies and the independent frackers, so looking at how they did over the April thru June time-span, when oil prices pretty much stayed within a few dollars of $60 a barrel, should give us a sense of whether or not they can remain profitable, or even remain in business, in the current oil price environment, where oil has been trading below $50 a barrel over the past few weeks...understand that the financial situation for independent drillers, whose profitability is directly related to the wellhead price they receive for oil and gas, is quite different than that of the vertically integrated major oil companies, who have downstream oil refining and product marketing operations that are likely made even more profitable when oil prices are lower...

the oilfield service companies, the first to feel the hit when drillers cut back, also announced that they had made additional workforce cuts this week; as of quarterly filings on July 24th, Halliburton said it had cut nearly 14,000 jobs, 5000 more than it had previously announced, while Baker Hughes said it had laid off 13,000 employees, 2,500 more than it had previously reported....and on Thursday, Weatherford International announced an additional 1,000 job cuts, on top of the 10,000 workers who were laid off earlier this year...finally, Hercules Offshore did not have any earnings to report, as they announced they'll be filing for bankruptcy and turning control of what's left of the company over to bondholders...they'd already cut 40% of their workforce and cold-stacked 11 of their 20 offshore drilling rigs...they join BPZ Resources, Quicksilver Resources, American Eagle Corp. and Dune Energy, who have all sought bankruptcy protection in recent months...

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